On the sixth day of President Bush's month-long, endless Texas vacation, his deputy press secretary made a surprise announcement.

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SCOTT MCCLELLAN, WHITE HOUSE DEPUTY PRESS SECRETARY: The president has reached a decision on the issue of stem-cell research.

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SHIELDS: That night the president addressed the nation for 11 minutes.

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GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Most scientists, at least today, believe that research on embryonic stem cells offers the most promise. Scientists further believe that rapid progress in this research will come only with federal funds.

Research on embryonic stem cells raises profound ethical questions. I'm a strong supporter of science and technology. I also believe human life is a sacred gift from our Creator. I worry about a culture that devalues life. As a result of private research, more than 60 genetically diverse stem cell lines already exist. I have concluded that we should allow federal funds to be used for research on these existing stem-cell lines.

(END VIDEO CLIP)

SHIELDS: Margaret Carlson, did the president succeed in going down the middle on this issue?

MARGARET CARLSON, "TIME" MAGAZINE: Well, the middle can be a bad place to be because, because you can get run over by people on both sides.

But in the this matter I think he may have found the middle, at least temporarily, for one reason: those 60 stem cell lines which, I think, satisfy those people who wanted to go forward with stem-cell research. It was kind of a surprise that they were out there. You could picture Tommy Thompson calling -- hello, do you have any stem- cell lines.

And he came up with 60 when most scientists thought there were fewer than 30. I mean, there's a problem -- some of them aren't here in this country.

But this did another thing for George Bush which, if there hadn't been this stem cell controversy, his aides may have had to come up with something like it because it gave him -- this tough call gave him a fresh chance to show himself to people. And his aides were tripping over each other to us how thoughtful and serious and earnest and how much he did his homework over this issue, which is something we didn't know about him before.

SHIELDS: Bob Novak, certainly this was the most presidential moment of George Bush's presidency. Is it a defining moment, as well?

BOB NOVAK, "CHICAGO SUN-TIMES": I think so. I thought his speech was very good. It was the most pro-life statement I've ever heard by a president of the United States, including Ronald Reagan.

But it was a political speech. And all the talk about this is not politics -- it might not have been politics in George W. Bush's mind -- I'll take him at his word on that -- but it was obvious he was hunting for the political center.

As a defining moment, I'm afraid, because what he did was he took a position where he could have taken a moral position and said no, and that would have been it and they would have come back and said, no, you've got to do this. Instead he, like his father, he went down the middle of the road. He was pushed by his staff into doing that. And there's no question in my mind that opening up the stem-cell -- stem cells that are available means that there will be incessant pressure for more, more, more.

So he didn't solve anything.

SHIELDS: Tom Davis, Bob Novak makes a good point in the sense that scientists are not going to come back and say, well, that's enough on the research -- not with all the people who are investing. You know, well, I guess there was nothing there. There will always be a demand and a greater demand for further and expanded research, won't there?

DAVIS: Well, there may be. We don't know where this is going to take us. I'll just say this: I think this was heartfelt. I think he made his own conclusion; gave his speech, gave, I think, a good accounting.

And I think it's going to sell in Congress because it's very polarized. You have members to the right of him and to the left of him on this issue. I think he was very convincing, and he's seemed to have draw support and opposition from both quarters. But it was a defining moment.

SHIELDS: Kate O'Beirne, your reaction to the speech itself and the president's statement.

KATE O'BEIRNE, "NATIONAL REVIEW": I think the speech itself was very effective. It made clear that he didn't just talk to everyone with an opinion and some expertise to offer, he heard everyone with an opinion and some expertise, because in a very efficient and credible manner he waved back and forth throughout. So he made it clear, I have heard everyone.

And that makes it a little easier -- if you wind up disagreeing with his ultimate conclusion, it makes it a little easier because you do recognize he paid attention, he studied it closely and he heard.

But his aides have been making clear to people when they, themselves, are lobbied by people on both sides -- they would make it clear: This is the president personally. And you can understand why he waited like he did. I mean, this is not like weighing a Social Security reform plan or master an economic forecast. He recognized that he was weighing protecting human life against the possibility of possibly life-saving techniques.

Many people do share Bob's concern, that it might be unstable where he tried to draw the line. But most pro-lifers I've spoken to were pleased with the parts of his speech that were so life-affirming.

SHIELDS: I have to say I thought the president's speech was the best I'd ever seen him. He was the most presidential; he was the most thoughtful. I agree totally with Kate that he gave the strong impression he had not only listened to, but had heard. He made the argument -- and his statement showed that he understood the arguments had been made on each side. I thought that was impressive.

Having said that, and I thought -- the idea that Jim Gilmore, the fellow Virginia and classmate, I think, at law school with the chairman of the Republican Committee came out and said there was nothing political about it struck me as a little bit silly. I mean, this was obviously a political decision. It has to be a political decision; and there's nothing wrong with a political decision. I hate to hear people disparage politics...

(CROSSTALK)

SHIELDS: ... one other thing, and that was his speech stood in stark and dramatic and welcome contrast to the brouhaha, the absolute clown's performance at the NIH on cloning this week where Italian scientists were saying, we're going to clone and go ahead. I mean, the president looked so much more thoughtful by contrast. NOVAK: The trouble is it did look political. And this is -- shouldn't be a political decision. If -- when he says that he has a value for human life and he says that these are living things. To say, well, OK, they're living things and we don't want to kill them, therefore we're going to use some that were thrown away and are not being used.

That -- I thought it was a good speech with a dreadful conclusion, which I thought did sound political. Like he was hunting for a Social Security compromise.

O'BEIRNE: Well, he clearly wanted to be pro-research and pro- life. And to the extent that some of the pro-life groups applaud what he's done, although there's a division of opinion on that, he was -- he met with some success.

CARLSON: And I think some of the pro-life groups were pretending to go angry because, in fact, they were fairly happy with this decision because it's a small group of the pro-life group that wanted this not to go forward.

SHIELDS: OK. Any final thought, Tom?

DAVIS: Well, again, I think once he's made the decision, then you have to spin it. But I think coming to that conclusion was a very personal moment for him, and I think he gave it a lot of thought.

SHIELDS: And I just have to say the spin was just a little bit -- it made James Carville look like Calvin Coolidge for goodness' sakes, talking about how curious...

(CROSSTALK)

SHIELDS: ... the president's supposed to be curious for goodness' sakes!

Tom Davis and the GANG will be back with the reaction to the president's decision.

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SHIELDS: Welcome back.

Many conservatives muted their reaction to President Bush's stem- cell decision.

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SEN. SAM BROWNBACK (R), KANSAS: I was glad that he's limited that to a particular line, but I worry about that moral barrier saying that you can use these as property. They are people.

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SHIELDS: The Catholic hierarchy was more critical.

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CARDINAL THEODORE MCCARRICK, ARCHBISHOP OF WASHINGTON: The allotment of federal funding, the money we pay in our taxes for something that many of us feel is morally wrong, it opens the door for experimentation on human beings.

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SHIELDS: Advocates of federal research funding, scientists and members of Congress alike were not satisfied.

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DR. JOHN GEARHART, JOHNS HOPKINS UNIVERSITY; We have many questions about these 60 cell lines that he says exists, that for many of the scientists we are just unaware of.

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REP. JERROLD NADLER (D), NEW YORK: By limiting the stem cell research to the existing relatively few cell lines that already exist, the president is condemning thousands, maybe millions of people to continue to disfigurement or disease or perhaps early death.

(END VIDEO CLIP)

SHIELDS: Bob Novak, was this the reaction that the White House had expected?

NOVAK: I think they thought there was going to be less criticism from the advocates of research. I really thought they said well, you know, the president's come out for research.

There was -- I mean, Dick Gephardt was really harsh -- the House Democratic leader -- on the president. And Jerry Nadler was talking about contributing to death. So I didn't they expected that harsh of a reaction. They really worked the right a lot more than they worked the left, naturally. And they got people like -- they got Pat Robertson and Jerry Falwell to say it was terrific.

But the people who I -- who have been working this issue, I've been talking to, were very disappointed in the president's decision. Deal Hudson, the editor of "Crisis" magazine...

SHIELDS: A Catholic magazine.

NOVAK: A Catholic magazine -- who had worked with the Bush campaign on -- these people are very disappointed. And you saw in that reaction, the question is this doesn't end anything. This just -- if he had said no, no, no, then he's put it in the hands of Congress would be one thing. But he -- this doesn't settle anything.

O'BEIRNE: It does end one thing, Bob. An awful lot of people on Capitol Hill, and I assume Tom recognizes this too, predicted that by the end of the year Congress would have approved funding -- federal funding for stem cell research that involves the destruction of embryos. There unfortunately is a congressional majority for that. A terrible development.

Now the president, by only permitting stem-cell lines -- experimentation on stem cell lines of embryos already destroyed probably has derailed that effort. And so to that extent, I think might have been politically successful.

SHIELDS: Although isn't Tom Daschle, Tom Davis, just said that he's going to bring it up in the Senate? And there's certainly -- I mean, there were 70 votes in the Senate earlier. Now, that was obviously...

(CROSSTALK)

DAVIS: ... he'll get hit right and left on this in the House and Senate. But I think his -- he will carry the day. I think in the end his is...

SHIELDS: Meaning the president will carry the day.

DAVIS: Exactly. I think the president wins this in Congress.

You know, Dick Gephardt will argue about anything at this point. He's so desperate to try to create issues and be divisive about anything that happens. This is the formerly pro-life Dick Gephardt who has done a complete flip-flop; so that doesn't surprise me.

But I think the president's decision will carry the day. But I expect amendments on the left and on the right on this issue in the House. It's a very divisive issue, and people feel very strongly about this on both sides.

SHIELDS: Margaret Carlson?

CARLSON: I agree with Kate; I think this has derailed it. Coming up with these 60 lines, proceeding, has taken the steam out of...

SHIELDS: Both sides.

CARLSON: Both sides. In this battle, though, you can be pro- life and be for stem cell research. The whole pro-life moment was not on one side on this.

SHIELDS: The National Right to Life Committee came out...

CARLSON: national Right to Life.

And I think it's important to -- you know, you can respect the view that you hold, Bob, and others, that life begins in a petri dish without thinking that that should be the thing that controls this whole area of research.

NOVAK: The point was the president was unequivocal about this in the campaign. He was unequivocal in letter to Bob Bess (ph), who is a pro-life advocate just in May.

And so that is the problem: that if you put enough pressure on this president, he will -- he can be moved. He was moved...

(CROSSTALK)

DAVIS: Let me say, I think...

CARLSON: This was before he knew the whole issue, as his aides are anxious to point out to us.

DAVIS: He backtracked. He may have narrowed it and clarified it.

But let me say this: His presentation to the American public, I think, is going to sell. And they're going to recognize he recognized all the parts of this issue, and this was leadership.

SHIELDS: Well let me say one thing for sure: and if they think this was the final statement they are crazy.

I mean -- no, but if they think, boy, we finally passed our final exams and this was our oral, giving this 11-minute speech -- he's got to continue to dominate this debate or it's going too be taken away from him.

I'll tell you why I part company a little bit with Margaret and Kate on the political technicalities on this: I think there's a great political constituency to be wooed and won here, and those are the people who want the research for diseases. I mean the...

CARLSON: But you heard them even say that they may go on -- they're waiting to see what these 60 -- you know, what they present, whether they're really as good as...

(CROSSTALK)

O'BEIRNE: And the president can really help educate, too, which he began doing this week. The polls flipped immediately as soon as people realized that this kind of research involves killing embryos, a majority are opposed. So a lot of public education has to take place. And on cloning, too, which the president came out firmly in favor of a ban on all cloning. And I think now the president is in a position to do that.

NOVAK: Let me just add one small thing, and that is this is an issue where I can't find anybody who fully agrees with the president.

On "CROSSFIRE" last night we got Senator Gordon Smith of Oregon, is the president's defender, and he said, well, of course we have to go further. And it just -- I just can't find anybody who said the president has got it exactly right. Anybody, that is, who studied this carefully.

DAVIS: But I think he's going to carry the day in Congress.

CARLSON: He bought himself some time...

NOVAK: That's about it at the most

(CROSSTALK)

CARLSON: ... could turn out to be like the surplus and it's not really there, these 60 stem cell lines; and maybe they don't hold the promise that Tommy Thompson and others say they do.

But for the moment if it did, it would give him a way to go forward without alienating either side.

DAVIS: This doesn't stop research, too; this just stops government funding...

(CROSSTALK)

CARLSON: You must have government...

(CROSSTALK)

DAVIS: ... a lot of these lines were developed without government...

(CROSSTALK)

SHIELDS: Not if there's a buck to be made. And we'll talk about that at some later point.

SEN. TOM DASCHLE (D-SD), MAJORITY LEADER: On six separate occasions in just six months the administration has demonstrated a willingness to walk away from agreements that were embraced by many of our closest friends.

It is not enough, as President Bush suggested, simply to send U.S. officials to international meetings. Woody Allen wasn't talking about foreign policy when he said that 85 percent of life is just showing up.

And while we recognize that U.S. troops are not the world's policemen, we must also recognize that it is sometimes in our national interest to project our power for peace. National missile defense is the most expensive possible response to the least likely threat we face. (END VIDEO CLIP)

SHIELDS: Kate O'Beirne, has Senator Daschle found a weak spot in the Bush political armor?

O'BEIRNE: He's going to have to keep probing I think, Mark.

This I do not understand. As much as I disagree -- this I don't understand. He's playing to, it seems to me, an area where the administration has a particularly strong bench, for one. Where the vice president, Colin Powell, Don Rumsfeld, Condoleezza Rice all articulate and defend the foreign policy. A very impressive team.

Secondly, he seems to be saying -- the merits of argument that the administration -- the Bush administration is too aggressively defending American interests. I think that's a tough case to make to the American public.

And finally, his timing is all off. He's the one who's blocking important confirmations in the Senate. We don't have a UN ambassador because Tom Daschle won't permit a vote on him. He's blocking other important positions. And in September there's a big vote on trade, and the Democrats are at the most isolationist when they're opposing trade.

So on all these scores, Mark, this just doesn't work.

SHIELDS: Margaret.

O'BEIRNE: The biggest blunders Bush has made so far have been in foreign policy, and I think he's totally vulnerable there. He didn't even know how many troops we had in Kosovo -- switched on that. North Korea, you get out, you know, don't deal with them -- OK, then Colin Powell steps in, deal with them. Kyoto, we're out of there. ABM, let's trash it before we have anything to replace it.

People are very worried about that. And so this is an opening for a Democrat.

SHIELDS: It's where people are really concerned, according to polls that (UNINTELLIGIBLE) all the time CNN/"USA Today" wanted more attention --- the president to devote more attention to foreign policy than he has.

DAVIS: Well, the majority think he's doing a good job. Kyoto was dead on arrival to begin with; I think the Senate voted 97 to nothing last year...

O'BEIRNE: Including Tom Daschle.

DAVIS: ... to reject it.

I think Tom Daschle's running for president.

SHIELDS: You think Tom Daschle's running for president?

DAVIS: Absolutely.

SHIELDS: Bob Novak?

NOVAK: I do too.

You know, the criticism that Senator Daschle made of the Bush administration are almost exactly what the Republicans made of the Clinton administration: that he wasn't close enough to our allies, he was too close to China and Russia.

I think politically, Mark, when you make a foreign policy speech, you're always playing on very thin ice -- skating on thin ice, and this was not effective politically. I like Tom Daschle. I think he's a very -- going to be an effective majority leader.

But I'll tell you something else: If George Bush had made that speech and delivered it that way, Tom Shales, the critic of the "Washington Post," would be trashing him because that was a badly -- it wasn't a great speech, but it was badly delivered. I think when Tom Daschle gives an important speech he's got to learn to present it a little better.

SHIELDS: You know, Bob -- and I'll tell you, you are the Mike Deaver of this broadcast, and I have to say I agree with you. Tom Daschle did not go (UNINTELLIGIBLE).

I think it is an Achilles heel. I think Margaret's absolutely right; it's an Achilles heel of this administration.

I mean George -- let's be honest about it: George Bush thinks fettucini alfredo is the president of Italy.

NOVAK: Isn't he?

SHIELDS: We'll be back with a "CAPITAL GANG Classic": President Bill Clinton's first summer vacation.

(COMMERCIAL BREAK)

SHIELDS: Welcome back.

This week George W. Bush began his first presidential summer vacation at his Texas ranch. Eight years ago, Bill Clinton spent his first presidential summer vacation at Martha's Vineyard, Massachusetts, as guest of former Defense Secretary Robert McNamara.

This was what your CAPITAL GANG said on August 21, 1993. Republican Congressman Henry Hyde of Illinois was our guest.

(BEGIN VIDEOTAPE, AUGUST 21, 1993)

CARLSON: Well, he doesn't have to fit in there. He's not going to move there; he just has to vacation there. And it's a glorious place.

Why be president if you can't go on vacation to a really lovely spot? And you know, you said luxury resort: Isn't every beach a luxury resort?

REP. HENRY HYDE (R), ILLINOIS: I thought that the president would go out to California and vacation at the Thomason residence because he'd be closer to his barber then...

(LAUGHTER)

NOVAK: He does fit in, Margaret, he does, because he really is an elitist. This gives...

(CROSSTALK)

NOVAK: ... notion that this is Bubba; that this is a good old boy from Hope, Arkansas.

And what he really is -- he loves to be with the beautiful people at Martha's Vineyard. Why did he go to Start Rock (ph), Illinois? Now wouldn't that have been -- or Lake Oakabochee (ph), Iowa or just some ordinary place where ordinary Americans go?

CARLSON: If you're inherit the money and you're George Bush and you're a WASP and you go to the family compound, that's OK.

SHIELDS: And the thing he's taking the most visible delight from is the fact that his daughter, with his encouragement, has mastered water skiing. I mean, he spends time with his child. I mean, I don't know what's wrong with that.

CARLSON: The press should leave him alone. He had to go to Martha's Vineyard to get a little privacy.

NOVAK: This is the only president I know of who doesn't have a home of his own, own one in memory in this century, at least. And he's the only one who doesn't have a vacation place. he's kind of a rootless person.

CARLSON: A man without a country house.

(CROSSTALK)

SHIELDS: ... I mean Bob, by that definition Mr. Levit (ph) in Levittown would be a hell of a president.

(END VIDEOTAPE)

SHIELDS: Bob Novak, in view of the fact that Bill Clinton now has two houses, and that you've never been to Lake Oakabochee, Iowa...

(CROSSTALK)

NOVAK: ... been there three times.

SHIELDS: Wasn't it silly of you to criticize President Clinton...

(CROSSTALK) SHIELDS: ... vacation spot?

NOVAK: I was stunned how perceptive I was then, because that was the whole problem with his presidency: He was dealing with those rich liberals up there. He should have gone to Start Rock, Illinois. He would have been a better president.

SHIELDS: Margaret?

CARLSON: Claire Shipman of ABC did this great interview with Bush traipsing around the ranch. And he takes her to the office and says how much he's working -- I'm going to read everything on the desk -- well there was nothing there. And so he says, well, I'm going to call a few world leaders.

They don't like to admit they're ever on vacation.

SHIELDS: No. And Clinton didn't. And Mr. Bush the first didn't, with his one-hour 18 holes of golf.

Tom Davis?

DAVIS: They're not on vacation. they're on 24-7. The change of scenery, I think, does them a lot of good. Congress is out of town. More power to him; I hope he enjoys it. But he's on 24-7; every president is.

O'BEIRNE: The first vacation, though, when he had to put the arm on somebody else because he had no place he owned and no place to go was really an early indication of his MO. Someone else was always going to pick up the tab, and ultimately Al Gore picked up the tab.

(CROSSTALK)

SHIELDS: I'll say this: A working vacation is an oxymoron like...

(CROSSTALK)

NOVAK: People ought to...

SHIELDS: Bob, let me make one point; that is: Ronald Reagan knew how to take a vacation. He took it, he didn't go through these phony...

CARLSON: No apologies...

SHIELDS: No apologies, no briefing books, no aides with solemn expressions...

(CROSSTALK)

NOVAK: I like people who live in homes they bought themselves.

SHIELDS: Oh, do you really, Bob?

Listen to Mr. Private ownership. Thank you Fannie Mae.

Tom Davis, thanks for being with us very much. We'll be back with the second half of CAPITAL GANG. "Newsmaker of the Week": Hollywood's ambassador to Washington Jack Valenti. "Beyond the Beltway" looks at Palestinian/Israeli violence with Martin Indyk, former U.S. ambassador to Israel. And our "Outrages of the Week."

That's all after a check of the hour's top news.

(COMMERCIAL BREAK)

ANNOUNCER: Live from Washington: THE CAPITAL GANG.

SHIELDS: Welcome back to the second half of CAPITAL GANG. I'm Mark Shields with Robert Novak, Kate O'Beirne, Margaret Carlson. Our "Newsmaker of the Week" was Jack Valenti, president and CEO of the Motion Picture Association of America.

Jack Valenti: age, 79. Residence: Washington D.C. Religion: Roman Catholic. Won the Distinguished Flying Cross as a B-25 commander in World War II. MBA from Harvard Business School, special assistant to President Lyndon B. Johnson. He became the motion picture association's third president 35 years ago. Margaret Carlson sat down with Jack Valenti earlier this week.

(BEGIN VIDEOTAPE)

CARLSON: Whenever something bad happens in America: school shooting, anything we don't like, your face is the put on the congressional dart board -- it's got to be Hollywood. Now, indeed, Hollywood does put out some coarse drek, but it does some good stuff. How does it feel to be put on the hot seat?

JACK VALENTI, CHAIRMAN, MOTION PICTURE ASSOCIATION: I spent my entire working career in two of life's classic fascinations: movies and politics. And there's plenty of hot seats to go around in both. And I understand that. I think if I were in the Congress, I would probably be trashing the movie industry too. It's an easy target.

CARLSON: Let's talk about the rating system for a minute. It's your baby. You're the author of it and here are a few things said about it.

It, quote, "favors studios over the independents. It rates sex more harshly than violence. It's a form of censorship, and by replacing the X with the NC-17 it leads to boycotts by movie theaters" of the films that get that rating.

So defend your rating system.

VALENTI: If you can believe this, 81 percent of parents with children under 13 found the rating system as very useful to fairly useful. That is a massive parental endorsement. Number 2, we don't force anybody to cut one millimeter of their film. When a director or producer cuts his film, he does it for economic reasons, not for aesthetic reasons. So you can't blame the rating system if he voluntarily decides he wants a less severe rating, so he edits his film.

And third, I changed the X to NC-17 because the X became synonymous with pornography and I thought that there ought to be films out there, serious films, that only adults could see. Unhappily, the NC-17 has not been used mainly because producers believe they will lose money because they will shrink their audience.

CARLSON: Do you still consider yourself a Democrat?

VALENTI: I'm a Democrat by upbringing, but I've learned in my long and sometimes people would say checkered career, that I'm not partisan.

CARLSON: Have you gone over to visit President Bush?

VALENTI: I'm loath to say that my governor, the governor of my state, I have not seen him since he became president, except at a big dinner, an alfalfa dinner and I saw him from a distance and waved at him and he waved back.

CARLSON: You've had almost every member of Congress over to the movie theater that you built, in the doing room where Susan Gauge comes and cooks, and you serve good drinks and everybody goes in and watches a first run movie. How important is the lamb chop in the window to Washington?

VALENTI: I've never seen anyone succeed in this town on any issue that didn't have merit. If you don't have merit in your case, you can hang 20 lamb chops and maybe a couple of roasted duck and anything else, it won't do any good. We bring in more revenue, Margaret, to this country, than any other enterprise in this country: more than aircraft, more than agriculture, more an automobiles and auto parts.

CARLSON: Should the Congress subsidize the American film industry?

VALENTI: Oh, absolutely not subsidize.

CARLSON: Doesn't Canada subsidize it?

VALENTI: Canada subsidized their movies, but they also have a tax incentive plan which lures people from outside Canada to produce there.

CARLSON: You have lasted, what, 35 years?

VALENTI: I've been on this job 35 years.

CARLSON: Seven presidents, 13 Supreme Court justices, 200 United States senators have come and gone. But you're like the Washington Monument. Have you groomed a successor?

VALENTI: I think when the time comes for me to leave, I feel like Henry once said in a speech, he said, "If I die..." And right now, I am having a lot of fun. Energy level is high. The challenges are coming and I find them marvelously exciting to confront. And so, when everything begins to flag and fail then I'll tip my hat be on my way.

(END VIDEOTAPE)

SHIELDS: Margaret Carlson, I have to say, in watching Jack Valenti, as I do, and as I see him, run into him, as everybody in Washington does, it's hard to imagine he's 79 years old. This is a man of boundless energy as you describe him. But what does his career, 35 years, tell us about Washington and about Hollywood?

CARLSON: Well, the fascination of Washington and Hollywood, it's endless. He's got one of the great jobs. He underestimates the importance of the lamb chop because he does have a great setting for those parties and he loves being on the dart board because if he didn't have Joe Lieberman, there would be no Jack Valenti.

SHIELDS: Bob Novak, you've known Jack Valenti for a long time.

NOVAK: I knew him even before he was on the White House staff when President Johnson was a senator. You know when he was a $28,000 a year aide for the president, people used to make fun of him because he gave a speech saying "I sleep better night."

But he was doing the public business then. But now that he's a multi million dollar lobbyist, the highest paid lobbyist in Washington...

SHIELDS: Is he?

NOVAK: He reputedly is. And he's doing a special interest for a single business, everybody loves him. And that's what makes America great. You do the private interest and people love you. You work for the government, they don't think much of you.

SHIELDS: Did you follow that one, Kate?

O'BEIRNE: I don't think these supporters of term limits realize that Jack Valenti really holds the key to the kind of turnover they'd like to see on Capitol Hill. If the announcement was made that Jack Valenti was leaving and they would only consider former members of Congress, you would have as much of Capitol Hill cleaned out former members lining up for what they consider I think the most glamorous, highly paid job in town.

SHIELDS: Why?

O'BEIRNE: Because it is the most glamorous, highly paid job in town. You get to play with -- there's this mutual attraction: The power in Washington that Hollywood tries to enjoin to and of course the glamour, the reverse work.

SHIELDS: And representing Nicole Kidman, rather than Marc Rich.

O'BEIRNE: And he's bicoastal.

CARLSON: Although senators should know that he's going out with his Gucci loafers on.

SHIELDS: Next on CAPITOL GANG, a look at the new crisis in Israel with former ambassador, Martin Indyk.

(COMMERCIAL BREAK)

SHIELDS: Welcome back. "Beyond the Beltway": The Israeli policy of targeting alleged Palestinian terrorists was followed by a Palestinian bombing of a Jerusalem pizza parlor that killed 15 civilians including six children.

(BEGIN VIDEO CLIP)

HANAN ASHRAWI, PALESTINIAN LEGISLATOR: This is a tragic, tragic cycle of violence that is threatening to spin out of control. And what we need is for saner voices to prevail to end the occupation.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

GIDEON MEIR, SHARON ADVISER: If Arafat would have liked to find another solution, another way, he would have arrested all those people who are involved, all of those terrorists who are involved in this kind of terrorist acts.

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COLIN POWELL, SECRETARY OF STATE: Our concentration today is on encouraging both sides to act with restraint. This kind of violence gets us nowhere.

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SHIELDS: Last night Israeli troops occupied PLO headquarters in East Jerusalem. Joining us now from East Hampton, New York Martin Indyk, senior fellow at the Brookings Institution during the Clinton Administration. He was special assistant to the president, assistant secretary of state and U.S. ambassador to Israel. Thanks for coming in, Martin.

MARTIN INDYK, FORMER U.S. AMBASSADOR TO ISRAEL: Thank you for having me.

SHIELDS: Martin, what are the chances the hard-line Israeli policies will bring an end to be Palestinian violence?

INDYK: Look. I don't think on their own, Israeli policies can end the violence. What they would prefer to do is for Arafat to arrest the terrorists. After all he's committed to us to do that. They are operating out of territories that are supposed to be under Arafat's control. The message the Israelis tried to send him in the wake of this latest terrorist outrage is that if he doesn't arrest the terrorists he will lose things that are important to him, like his offices in East Jerusalem.

But even that I don't think is going to work anymore affectively than the target of assassinations. The one thing I think can work is for the United States to come in with an initiative backed by the international community while the Israeli's Sword of Damocles is still hanging over Arafat's head, and tell him that he has to live up to the commitments he's made to us. And now confront the Hamas and the Islamic Jihad and arrest the terrorists.

If he does that then we can get Sharon to ease off, stop the retaliation, ease the pressure on the Palestinians in the territories, and eventually resume the political process. If he doesn't do that, then we have to make crystal clear to him that we and the rest of the world will no longer treat Arafat like a statesman or as a peace partner.

SHIELDS: OK -- Bob Novak.

NOVAK: Martin, the present administration has been very critical of Prime Minister Sharon for targeting some of these alleged terrorists, by targeting I don't mean just arresting, I mean killing them, and Secretary of State Powell has taken a more or less of an even handed position.

I believe the Israeli government has said that this business of targeting these terrorists has been effective, but wouldn't you say that the murderous bombing of the pizza parlor indicates that it's not very helpful?

INDYK: Well, look, as I say, on its own, it's not going stop the terrorism. If Arafat would arrest the terrorists then it wouldn't be necessary for Israel to go out and target them. But what are the Israelis supposed to do? What did we did when Osama Bin Laden blew up our embassies? We used force and we tried to take him out. We didn't succeed either.

But Democratic governments face very difficult dilemmas in these kinds of circumstances where the terrorists feel free to attack women, children, six children were killed and an American citizen was killed this time and two others have died before, and the Israeli government is saying, look, Arafat should stop this violence and arrest the terrorists. If he doesn't do it then we are going to have to take action.

But I agree with you, I don't think it's particularly effective, but I do think that if we were to come in, there's already an American plan that's been accepted by both sides. That's the tenant work plan. If the work plan were implemented the violence would stop. It's a question of getting the parties to do what they have to do under that plan.

SHIELDS: OK -- Margaret Carlson. CARLSON: Martin, is there, the Clinton Administration was criticized for being too involved in the Middle East, and Bill Clinton putting too much on the line there, especially at the end, engaging in negotiations between Palestine and Israel.

The Bush administration backed off and sort of seemed to have a hands-off policy, let the Middle East twist slowly in the wind for a while. Colin Powell made a visit but doesn't the United States have to be involved? It's just simply not possible for the two to negotiate without intimate U.S. involvement?

INDYK: Yeah, I think that's right. I think we've gone from too hot to too cold. And if anybody is going to be left twisting in the winds it will be American interests in the end. So I would emphasize again, left to their own devices, the parties cannot stop this cycle of violence.

The international community needs to intervene and they won't do it, and they won't do it effectively, unless the United States takes the lead. We already have the parties announcing a cease fire, they have announced a cease fire, but it's not being kept. They accepted the Mitchell Plan, which is a road map to getting back to the table. They accepted the Tenet work plan, which, as I said, would stop the violence.

Now it is a question of getting them to live up to their commitments. In the first instance, in this situation, after this terrorist outrage, to get Arafat to arrest the terrorists. He arrested three low level people yesterday. We have to come in, it's a high maintenance management effort to stay on him to get him to move now, effectively and quickly.

And if he doesn't then the cycle of violence will escalate and our interests will be threatened.

SHIELDS: Kate O'Beirne.

O'BEIRNE: You've recently explained, and of course are reiterating tonight, that U.S. pressure and pressure of other western countries must be brought to bear on Arafat. You said the largest question in the Middle East is whether or not Arafat has the will and the ability to end the violence and begin becoming a legitimate partner seeking peace.

Is that really still an open question now? Haven't we known for some years, when Barak tried to meet Arafat, many people thought he went far too far and Arafat would not be met. Is it still really an open question about Arafat's intentions?

INDYK: Well, I don't know about Arafat's intentions. I'm not a mind reader, especially of Arafat's mind. But I do believe on the basis of my involvement with him and my own knowledge of his capabilities, that he can stop the terrorism. He's done it before. He did it in '95 and he did it in '96 again. He arrested these people. In this intifada he let them out of jail. He let them loose for too long, he let his own people ally with them in the violence against Israelis. Now he has to stop it.

I don't underestimate the difficulty involved, but he can do it. He has nine security organizations that answer to him directly. And if he gives them the orders and makes sure that they follow through on those orders, they can stop it. But he won't and he can't do it on his own. He needs us to come in both to hold him to account and to give him the cover and the explanation that he's responding to the demands of the international community.

These terrorists are popular in the Palestinian streets. He has to be able to explain to the Palestinian street why he's arresting people he let out of jail. And the reason is the international community is demanding it, and because Palestinian rights will not be achieved unless he stops the violence.

SHIELDS: Martin Indyk, thank you for being with us. The GANG will be back with "The Outrage of the Week."

INDYK: Thank you.

SHIELDS: Thank you.

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SHIELDS: Now for the "Outrage of the Week." Three cheers for Denver Mayor Wellington Webb, the citizens of Denver and "The Denver Post" newspaper, all of whom insist on calling the city's new $400 million football stadium "Mile High" which is what the old stadium was called, "Mile High."

With taxpayers picking up 75 percent of construction cost, the public ought to be call it what they want. The outrage: Invesco Funds Group, which paid for the naming rights is objecting, threatening court action, even. They want "Mile High" called "Invesco Field."

Sorry, Mile High is what it was and Mile High is what it always will be -- Bob Novak.

NOVAK: I understand. Congressional investigators have found in Clinton aide Bruce Lindsey's file a handwritten unsigned note on White House stationery. It says, quote, "Hugh says it is very important to him and the first lady as well as others."

Does Hugh Rodham use his sister Hillary's name in seeking presidential clemency for a convicted crack dealer? Senator Hillary Clinton reiterated this week that she knows nothing about this. That suggests her brother is a liar, but the alternative is Senator Clinton not telling the truth.

SHIELDS: Florida recount maven, Secretary of State Katherine Harris denied she was using her non partisan office to make George Bush president. Now reporters and Democrats have got hold of Harris' computer records although there was an attempt to erase them, which shows she prepared letters and speeches proclaiming Bush the winner even before the Palm Beach recount. She claimed not no know who was using her computer under the Web name "GOP Spinner." Turns out it was her campaign manager. Rather than run for Congress, shouldn't Harris consider resigning?

SHIELDS: Kate O'Beirne.

O'BEIRNE: China demanded that the U.S. pay $1 million dollars to cover its expenses following the collision caused by a Chinese pilot that crippled our Navy plane in April. Ridiculous, right?

The U.S. has reportedly agreed to pay Beijing $34,000 -- a ridiculously small sum, but a large enough symbol to please the Chinese, even a cent for tribute to China's hostage takers should be too much for U.S. taxpayers.

SHIELDS: And hats off to Senator Jesse Helms for objecting to it.

This is Mark Shields saying good night for the CAPITAL GANG. "CNN TONIGHT" is next.

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